DP466 A Chaotic Monetary Model of the Exchange Rate

Author(s): Paul De Grauwe, Hans Dewachter
Publication Date: October 1990
Keyword(s): Chaos, Chartism, Fundamental Analysis, Monetary Exchange Model
JEL(s): 132, 430
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=466

We use a monetary (Dornbusch) model of the exchange rate and introduce speculative dynamics, in which fundamentalists and chartists interact. The resulting non-linearities in the model produce `chaotic' behaviour of the exchange rate. We also analyse the effects of money-stock surprises in such a model. Finally, we study the behaviour of the exchange rate when `news' occurs infrequently.